Judge OKs Chinese drywall deal

A Chinese drywall manufacturer would pay hundreds of millions of dollars to resolve court claims by thousands of Gulf Coast property owners who say the product wrecked their homes, under a deal that won preliminary approval Tuesday from a federal judge in New Orleans. In his order, U.S. District Judge Eldon Fallon said he believes the proposed class-action settlement is "fair, reasonable and adequate," was negotiated in good faith and is "within the range of possible judicial approval." It's the largest settlement of its kind so far.

View full sizeJ. Pat Carter, The Associated Press archiveChinese drywall is believed to emit sulfur gases that corrode metal and make people sick.

Knauf Plasterboard Tianjin Co. agreed last month to create an uncapped fund to pay for repairing roughly 4,500 properties, mostly in Florida, Louisiana, Mississippi and Alabama. The deal also would create a separate fund capped at $30 million to pay for other types of losses, including those blaming drywall for health problems.

Fallon, who presides over more than 10,000 claims involving Chinese drywall, will hold a "fairness hearing" on the agreement in June before deciding whether to give his final approval.

Several companies had objected to the proposed settlement.

Centerline Homes Construction Inc., of Coral Springs, Fla., complained that the deal contains "too many contingencies, ambiguities and uncertainties ... to make a reasonably informed decision about their position." Lawyers for other homebuilders sued for allegedly using Chinese drywall argued that "inconsistencies and unanswered questions" could have been avoided if they had been involved in negotiating the agreement, Fallon noted.

Fallon also received an objection from Banner Supply Co., a Miami-based supplier of Chinese drywall that reached a $55 million settlement with plaintiffs in June 2011. Banner wanted to clarify that the settlement didn't resolve its own claims against Knauf.

Fallon, however, said none of the objections present obstacles to his preliminary approval.

"This conclusion is particularly true given that no (plaintiffs) have raised objections," he wrote.

The deal calls for Knauf to initially deposit $200 million in the repairs fund, which would be replenished as needed. A lead attorney for the plaintiffs has said the settlement is worth between $800 million and $1 billion, but a lawyer for the Chinese company disputed that estimate.

Steve Glickstein, a lawyer for Knauf Plasterboard Tianjin, said the company is pleased the judge granted preliminary approval, and is confident the settlement will receive final approval.

Around 55 percent of the people who would benefit from the settlement live in Florida, while roughly 35 percent live in Louisiana. The deal would resolve cases filed in both state and federal court.

Attorneys' fees and costs paid by Knauf are capped at $160 million and will not be deducted from homeowners' shares of the settlement money.

Chinese drywall was used in the construction of thousands of homes, mainly in the South, after a series of hurricanes in 2005 and before the housing bubble burst. The problems it has caused range from a foul odor to corrosion of pipes and wiring.